It’s hard to avoid the word deficit these days. Whilst pre-eminent among its current uses is of course its application to fiscal deficits, that kind of deficit is by no means the only one we face. Indeed, although it’s dominated us both literally and metaphorically these last 4 years, we may well discover that fiscal deficit is neither the most damaging nor the most dangerous of the plethora of deficits that surround us.
In particular, I think we need to understand the fiscal deficit not primarily as a cause, but as an effect. Because the direction of causation is generally thought to be in the opposite direction, all the policy levers are directed at reducing and eliminating the fiscal deficit. Success in this endeavour will, we are assured, lead to everything else in the garden being rosy. It’s worth all the current pain. As in any other illness, the treatment must be aimed not at symptoms, but at causes; the deficit is the cause, and so it is that which we must attack. Hence the Coalition’s obsession with the deficit, the whole deficit, and nothing but the deficit. But, to pursue the medical metaphor for a moment, if the wrong cause is being attacked, the patient is likely to get sicker rather than better. Just as leech doctors saw all disease as being to do with the blood, and draining as much of it as possible, so the fiscal hawks see the deficit as being the only issue to be addressed. The economic consequences are as doleful – literally – as were those suffered by the 18th century patient.
But the fiscal deficit is not a cause, it’s an effect of other, more fundamental deficits. I would point to the following as being the most significant:
- Democratic. I’m using the term in a broad sense, to go beyond the formalities of votes and ballot boxes, to encompass the general concept of control over the few by the many. Whether it’s the control of the mass of shareholders over the management of companies (witness the rebellion at Barclays over senior remuneration) or the control over media moguls by the electorate (witness the Leveson Inquiry for a spectacular example of that deficit in action) the failure of democracy, and the democratic deficit that failure has spawned, is much more fundamental than the fiscal deficit itself. Indeed, the fiscal deficit is like the meat in a sandwich of democratic failure. Lack of democratic control over capital has led to the fiscal deficit in the first place: the fiscal deficit now in turn deepens the democratic deficit by replacing elected governments with technocrats, as Greece and Italy attest.
- Environmental. The fiscal deficit, everyone agrees, can only really be dealt with by economic growth. The political dispute is simply about to what extent policy should be directed at the fiscal deficit directly (totally if your name is George) and to what extent indirectly by stimulating growth (quite a bit if your name is Ed). But growth, as we currently understand it at least, is simply and inexorably ratcheting up the environmental deficit. The downward economic spiral is largely a result of the lack of consumption, which creates over-capacity in the economy, which responds by laying people off, who respond by not spending, which results in greater over-capacity, and so on. So we must consume more, buy more, make more. And then what? Unless we face the environmental deficit, and find new ways of creating prosperity, all other deficits will shortly be irrelevant, as Sir John Sulston’s Royal Society report makes clear.
- Moral. Perhaps this is the most fundamental of all. Cardinal Keith O’Brien is every liberal’s favourite hate figure for his recent comments on gay marriage, but he is an instructive example of the truth that the same person can be both very wrong, and very right. In his attack on David Cameron for pursuing an immoral approach to tax and for failing to help poorer people but instead favouring “his very rich colleagues”, the Cardinal has surely put his finger on something significant. If any further evidence were needed, the latest Times Rich List shows that as the vast majority of our people see their living standards fall sharply, the rich sail on regardless, becoming ever richer in the process.
If we seriously addressed these three deficits, the fiscal one would sort out itself. As it is, the single-minded obsession with the fiscal deficit is leading us to ever greater deficits in the other three. We need to change direction, and fast. But that is not a castigation of George Osborne in favour of the lauding of Ed Balls. They are, in truth, as wrong as each other.